Five Eyes Gov't Awards R&D Contract to Counterdrone Co.

DroneShield Ltd. (DRO:ASX; DRSHF:OTC) announced it has been awarded an AU$900,000 research and development contract by a Five Eyes government.

The Five Eyes intelligence alliance was born out of the World War II era and includes Australia, Canada, New Zealand, the United Kingdom, and the United States.

DroneShield said the contract specifically aims to leverage the potential of the company's DroneSentry-X Mk2 and provide a set of software tools to enhance end-user capabilities in the counter-unmanned aerial systems (C-UAS) domain.

"DroneShield's radio frequency jamming capability has been recognized globally as highly effective in defeating nefarious drones," DroneShield Chief Technical Officer Angus Bean said. "This new contract highlights that the DroneSentry-X Mk2 is a step-function in smart- jamming capabilities. We are looking forward to delivering on the capabilities the Defense users are looking for."

The company said the contract "aligns closely" with its current technology roadmap. "Software controlled multi-channel wideband disruption allows for not only optimized channel management, frequency management, power usage, and optimization, but the addition of custom waveforms targeted at various threats," DroneShield noted in a release.

One of the Most Important Military AI Companies

DroneShield provides C-UAS protection with a focus on radio frequency sensing, artificial intelligence (AI) machine learning, sensor fusion, electronic warfare, rapid prototyping, and MIL-SPEC manufacturing, the company's website said.

Its technology uses "a multi-layered artificial intelligence-based solution for both detection and defeat, with smart, non-kinetic defeat."

The company offers "protection against a wide range of improvised threats" through UAV (unmanned aerial vehicles), UGV (unmanned ground vehicles), USV (unmanned surface vehicles), and UUV (unmanned underwater vehicles).

Bell Potter analyst Daniel Laing gave the stock a Buy rating and an AU$0.90 per share price target.

DroneShield showed record results with its first profitable year in 2023, "with AU$9.3 million profit after tax."

"DroneShield has had an outstanding last 12 months, which has been reflected in the share price performance YTD," Bell Potter analyst Daniel Laing wrote in a research note on March 4. Laing gave the stock a Buy rating and an AU$0.90 per share price target.

McAlinden Research Partners has rated DroneShield as one of the most important military AI companies as defense orders outpace equipment losses in Ukraine.

The Catalyst: A 'New Generation of Disruption Capabilities'

The new contract represents "the start of an entirely new generation of disruption capabilities," DroneShield Chief Executive Officer Oleg Vornik said.

"DroneShield products are considered to be market leading by many governments around the world," he continued. "We pride ourselves on setting the global benchmark."

As drone protocols are designed to move away from RF interference and work in high-noise, high-clutter environments means that traditional disruption methods may become less effective. A software approach to stay one step ahead has become important to successful disruption systems, the company noted.

Technical Analyst Clive Maund wrote in 2023 that DroneShield looked "set to succeed." In February, he wrote: "After starting higher again in November, it has advanced in a classic bullish staircase pattern, but over the past week or two the advance has accelerated dramatically with the price at last breaking out to new all-time highs, an impressive move given the number of shares in issue."

Laing commented on DroneShield's current sales pipeline of AU$510 million, with AU$388 million of potential orders this year.

"DRO's confidence in the sales pipeline is reflected in its recent investment (committed supply chain payments of AU$30m) in its inventory balance, which we view as a leading indicator of near-term sales announcements," Laing noted. 

Darren Odell of Peloton Capital also predicted good things for DroneShield, writing in July 2023 that the company had "already exceeded 2023 revenue estimates."

Ownership and Share Structure

Management and insiders own 11% of the company. CEO Oleg Vornik owns 2.23% of the company with 15 million options, on a fully diluted basis. Non-Executive Chairman Peter James owns 0.58% of the company with 920k shares and 3 million options, on a fully diluted basis, and Non-Executive Director Jethro Marks owns 0.22%, with 1.5 million options, on a fully diluted basis, according to DroneShield.

The company reports that the largest independent investor, Charles Goode, owns 4.41% of the company with 21.5 million shares, while strategic investors own a total of 13.99% of the company.

Eprius Inc. is the second largest shareholder, with 3.16% of the company with 18.5 million shares.

In its February 2023 placement, Droneshield said that it brought ten new institutional investors on board, but it has not yet released more details.

The company reports that there are about 616 million shares outstanding, and about 526 million free-float traded shares. Its market cap is about AU$499.37 million, and it trades in a 52-week range of AU$0.93 and AU$0.21.

Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of DroneShield Ltd.
2. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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